Brighter outlook for home building activity in 2012

New house and land activity should increase over the coming 12 months in Sydney, south-east Queensland and Perth, BIS Shrapnel has claimed.

According to BIS Shrapnel's Outlook for Residential Land, 2011 to 2016 report series, new house and land activity softened or fell in all major markets in 2010/11, due to the expiry of the First Home Owner's Grant Boost Scheme, sharp interest rate rises in 2009/10 and slowing economic growth through the year.

However, this decline is creating a rising undersupply in a number of markets, and with an improved interest rate outlook and strengthening economic conditions expected over 2011/12, new house and land activity will begin to recover in those markets where the deficiency will be most pronounced.

Senior project manager and report series author, Angie Zigomanis, said the expiry of the First Home Owner's Grant Boost Scheme had a significant impact on new lot production during 2010/11 – not only directly through the decline in demand from first-home purchasers themselves, but also indirectly as weaker demand for entry level dwellings prevented upgraders from selling their dwellings to purchase a new house.

"Following the expiry of the Boost Scheme, first-home buyer demand in 2010/11 was around half that of the stimulus-induced peak of calendar 2009, reflecting the pulling forward of demand to take advantage of the incentive," Mr Zigomanis said.

The report series found that, with the exception of Sydney and Perth – where activity is still modest – all capital city and south-east Queensland markets reported a fall in lot production in 2010/11.

After record lot production in Melbourne and new record levels in Adelaide in 2009/10, any pent up demand pressures have now well and truly eased, and activity is slowing. Lot production in the south-east Queensland markets of Brisbane, the Gold Coast and Sunshine Coast has collapsed to long term lows, reflecting the underlying oversupply of dwellings across the region.

"However, there is light at the end of the tunnel," Mr Zigomanis said.

"A rising deficiency is developing in a number of markets, while a benign interest rate outlook will see purchaser confidence begin to return, particularly with the flow on effects from rising resource investment forecast to permeate through the rest of the economy from 2012.

"First home buyer demand also appears to have bottomed out, with the 'pull forward' effect created by the First Home Owner's Grant Boost Scheme having been largely worked through. We expect a slow recovery in first-home buyer demand through 2012, which will help to underpin upgrader demand for new houses and land."